Johnstone: K+S takeover far from a done deal

Anyone who thought that PotashCorp’s takeover of K+S was going to be a slam-dunk has another think coming.Not only has K+S rejected PotashCorp’s “friendly’’ takeover bid of $10 billion for the Kassel, Germany-based company as “inadequate,” but K+S also rebuffed PotashCorp’s request for a face-to-face meeting. On Friday, PotashCorp issued a statement calling for a “collaborative discussion” (presumably in German) between PotashCorp CEO Jochen Tilk and K+S CEO Norbert Steiner to address concerns raised by K+S.

REGINA&nbsp;–&nbsp;Anyone who thought that PotashCorp’s takeover of K+S was going to be a slam-dunk has another think coming.Not only has K+S rejected PotashCorp’s “friendly’’ takeover bid of $10 billion for the Kassel, Germany-based company as “inadequate,” but K+S also rebuffed PotashCorp’s request for a face-to-face meeting.

On Friday, PotashCorp issued a statement calling for a “collaborative discussion” (presumably in German) between PotashCorp CEO Jochen Tilk and K+S CEO Norbert Steiner to address concerns raised by K+S.

Specifically, PotashCorp said the proposal would combine “two best-in-class companies with minimal overlap to create a global producer in the nutrient industry,’’ and was “not predicated on closing mines, curtailing production, selling the salt business or cutting jobs.’’

“We believe that the combination of our two companies would create a well-capitalized, more diversified company across products, geographies, production, distribution and customers,’’ Tilk said in a statement.

However, K+S responded that there was nothing new in PotashCorp’s statement on Friday that “could form the basis for talks.’’

Steiner said Thursday that PotashCorp’s 41-euro bid for K+S “does not adequately reflect the fundamental value of K+S. Not only does this proposal undervalue of our potash and magnesium products and our salt business, it completely disregards the value of our Legacy project.’’

The Legacy project, of course, is the $4.1-billion potash solution mine being built near Bethune, which would be the first greenfield potash mine built in Saskatchewan in about 40 years. Legacy, which will produce two million tonnes a year of potash by 2017, is also K+S’s biggest capital investment to date and represents Europe’s largest potash producer’s beachhead in North America.

But Legacy is also very much a pet project of Steiner, who said at the groundbreaking ceremony for the Legacy project in 2012 that the event had a “personal, nostalgic meaning” for him. He recalled one of his favourite books growing up was about a Mountie trained in Regina, who travels to Moose Jaw to get supplies to track down a murderer in northern Alberta.

“I can hardly believe that I am right here today, near Moose Jaw, as the representative of an important company!”

More importantly, the Legacy project would mark the return of K+S to Saskatchewan after an absence of nearly 40 years. In 1968, two predecessor companies of K+S joined forces with a French company to build the Alwinsal mine, which was ‘nationalized’ by the former Blakeney NDP government in 1976. The company that took over the mine? Potash Corp. of Saskatchewan, which renamed the mine PCS Lanigan.

Steiner said the virtual expropriation of the mine for “the relatively low price’’ of $76.5 million soured the company on Saskatchewan for decades. “Even more than a generation later, you can hardly believe that such an act would happen in a country belonging to the western world,” Steiner said. “However, after so many years, we’re not looking back in anger any more.’’

So imagine Steiner’s surprise when his baby, his “legacy’’ if you will — the Legacy project — is now the target of another takeover attempt, this time by the privatized PotashCorp, which is now the largest potash producer in the world. It must seem like deja vu for Steiner, who joined the company in 1993.

Of course, sentiment doesn’t cut too much mustard on the stock markets or in the boardrooms of modern corporations. Money talks, and Steiner doesn’t like what he’s hearing from PotashCorp.

What Steiner is really objecting to is PotashCorp’s lowball bid for the Legacy mine, which has a book value of 11 euros a share and revenue value of 21 euros per share. The rest of the company, which generates 3.8 billion euros a year in revenues, would then be valued at 20 euros per share. “We believe PotashCorp is trying to take advantage of the valuation gap to take over K+S and gain control over Legacy.’’

Steiner believes that at least 50 euros per share would be much closer to a fair valuation for the company, which would include the revenue generation capacity of the Legacy mine.

There’s an old sports cliche that when they say it’s not about the money, it’s about the money. But in the case K+S, it’s also much more than that.

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